China's Holdings of US Treasurys Hit Record as Others Sell

China’s holdings of U.S. Treasury securities rose to a record in May even as net selling by private foreign investors in notes and bonds reached an all-time high, government data showed.

China stayed the biggest foreign owner of Treasurys as its holdings increased by $25.2 billion to $1.316 trillion, according to Treasury Department data released Tuesday in Washington. Japan, the second-largest holder, cut its holdings to $1.11 trillion. The net long-term portfolio investment outflow was $27.2 billion after a revised decline of $21.8 billion the prior month.

The yield on the 10-year Treasury note reached a two-month high in May as speculation the Federal Reserve may consider tapering its unprecedented bond-purchase program crimped demand for the securities at the same time the Standard & Poor’s 500 Index increased to a record. China has increased its holdings of long-term U.S. government debt in seven of the past eight months of available figures.

“Foreign central banks found the levels and the opportunity to buy Treasurys more attractive than private accounts,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “The month of May was characterized by a sharp sell-off,” so “some overseas markets were taking advantage of some higher-yielding Treasurys to add some additional duration exposure.”

U.S. residents bought a net $27.2 billion in foreign long- term securities, while non-government investors abroad were net sellers of a record $29 billion of Treasury bonds and notes, the report showed.

Official Purchases

Net buying by official entities of long-term Treasurys totaled $40.3 billion, according to the report, leaving net Treasury purchases for the month of $11.3 billion after factoring in private net selling, according to the data.

The yield on the 10-year Treasury note is 2.53 percent late Tuesday in New York, up from 1.63 percent on May 1.

The S&P 500 Index rose 2.1 percent in May, the seventh straight monthly advance, before falling 1.5 percent last month. Investors in U.S. Treasurys lost 1.94 percent in May, the biggest monthly drop in data going back to 2010, according to Bloomberg World Bond Indexes.

The Bloomberg U.S. Dollar Index, a gauge of the greenback’s value against 10 major currencies weighted by liquidity and trade flows, rose 2.7 percent.

Including short-term securities such as stock swaps, the total cross-border inflow was $56.4 billion in May, compared with a $28.3 billion gain the prior month, the report showed.